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Semester “Fall 2010”

“Money & Banking (MGT411)”

Assignment No. 01 Marks: 15

Important Tips

1. This Assignment can be best attempted from the knowledge acquired after

watching video lecture no. 1 to lecture no 13 and reading handouts as well as

recommended text book).

2. Video lectures can be downloaded for free from www.youtube.com/vu .

Schedule

Opening Date and Time November 04 , 2010 At 12:01 A.M. (Mid-Night)

Due Date and Time November 10 , 2010 At 11:59 P.M. (Mid-Night)

Note: Only in the case of Assignment, 24 Hrs extra / grace period after the above mentioned

due date is usually available to overcome uploading difficulties which may be faced by the

students on last date. This extra time should only be used to meet the emergencies and above

mentioned due dates should always be treated as final to avoid any inconvenience.

Question no 1

Part (a)

On 01 January 2010 JS Group want to issue bonds in the capital market having

face value Rs.1, 000 with coupon rate of 10% (semi annually and 15 years

maturity). Investor required rate of return in this scenario is 12%.

You are being the student of finance know the worth of fundamental methods of

valuation; therefore you are required to calculate the present value of the bond by

utilizing the fundamental methods.

Part (b)

The bond of JS Group is traded in the Karachi Stock exchange for Rs.950. The

par value of the bond is Rs.1, 000. The coupon rate is fixed at 12 % paid annually.

This bond will be matured after 03 year. What will be (YTM) of this bond?

Part (c)

EFU, an insurance company, wants to plan a new service to its policy holders.

During the meeting of executives, CEO offered a plan of house insurance. The

summary of estimated cash flows which were discussed in that meeting is:

· This project will need Rs.05 million as initial investment

· In the first year company will receive Rs.02 million as premium from the

policy holders.

· In second year, company expect to receive Rs.2.5 millions as premium

· In third year company estimated that it will have to receive only Rs. 01

million because there will be a earth quack in that period, as probability of

having earth quack is more than 80% as predicted by geologists.

· In the fourth year the company estimated to get Rs.1.5 million after clearing

the insurance claims of the policy holders.

· In fifth year they expect to receive only Rs. 0.5 million

Calculate the IRR of above mentioned plan by trail and error method?

Important Instructions:

Please read the following instructions carefully before attempting the assignment solution.

Deadline:

· Make sure that you upload the solution file before the due date. No

assignment will be accepted through e-mail once the solution has been

uploaded by the instructor.

Formatting guidelines:

· Use the font style “Times New Roman” and font size “12”.

· It is advised t compose your document in MS-Word 2003.

· Use black and blue font colors only.

Solution guidelines:

· Every student will work individually and has to write in the form of an

analytical assignment.

· Give the answer according to question, there will be negative marking

for irrelevant material.

· For acquiring the relevant knowledge don’t rely only on handouts but

watch the video lectures and use other reference books also.

· provide all calculation only answer will not be appreciated

Rules for Marking

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Replies to This Discussion

thx lucky i ll do it :D
I thing it is correct thanx for that.
Everybody got confused about this assignment please help each other because i am also confused. If confirmed then mail me also ali_gulzar@hotmail.com
hi thanks for assignment remember me in prayers
Lucky plese which formula u used in present valu i didnt seen whole of the hand note MGT 411and as well as formula in the soultion of tariq bahi is a correct or not i think that was also worng and formula is
Pv (1+ ( i/n ))^n but i think the correct formula is FV = PV(1 + i)^n in part (A) as well as i did not under stand the value of i=0.5 and again value of i=0.6 any body tell me who can colcolate the assignment.
DEAR
pls chek the solution of finacial mngmnt 1st ASSIGNMENT that is by teacher,,,us ma use kia ha ye formula,,but thora sa differnt ker k,
formula that i have used its also same as this of you...acording to ur formula
Pcp = 50/(1+0.06) + 50/(1+0.06)^2 + 50/(1+0.06)^3 + 50/(1+0.06)^4 + 50/(1+06)^5 + 50/(1+0.06)^6 + 50/(1+0.06)^7 + 50/(1+0.06)^8 + 50/(1+0.06)^9 + 50/(1+0.06)^10 + 50/(1+0.06)^11 + 50/(1+0.06)^12 + 50/(1+0.06)^13 + 50/(1+0.06)^14 + 50/(1+0.06)^15 + 50/(1+0.06)^16 + 50/(1+0.06)^17 + 50/(1+0.06)^17 + 50/(1+0.06)^18 + 50/(1+0.06)^19 + 50/(1+0.06)^20 + 50/(1+0.06)^21 + 50/(1+0.06)^22 +50/(1+0.06)^22 + 50/(1+0.06)^23 + 50/(1+0.06)^24 + 50/(1+0.06)^25 + 50/(1+0.06)^26 + 50/(1+0.06)^27 + 50/(1+0.06)^28 + 50/(1+0.06)^29 + 50/(1+0.06)^30 page no 41 on hand out of mgt411,
then calculation will be lenghty,,so this is short ct and from book of FM..FOR MORE DETAIL PLS ADD MY ID IN UR ACCOUNT,,THEN WE DISCUSE IT DEAR
lucky.jan077@gmail.com
Thanks a lot bro this is really a nice solution. Once again thanks a lot.
@saima first prepare to solve ur on self and than compare to otherz...
dear ur provided part b solution is rite


what about ur 1st part and 3rd ?

@mr
i have solved my first part wid diffrent formula given in fm,and ur answer matches my answer.and in part c irr will be 19% coz it will give the answer close to zero.
YOUR PART C IS ALSO CORRECT LUCKY.IRR WILL BE 18.9 OR 19% CHK IN EXCEL.
thanks lucky.... :)

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